Murphy --Seeking advice on Builder incentives in Murphy (Wylie, Howe: sales, real estate)

[calmdude]

I have heard that in place like Murphy, the builders try to keep prices high by offering incentives. This way, the effective price u pay is reduced - although the taxes go up. Questions:
(a) is this legal?
(b) can some one give me a range (as a percent of purchase price) of these incentives? Obviously, this will vary by builder, inventory etc - I am looking for ballpark numbers.
Thanks

[nsumner]

There is no formula on how much a builder will come down on price and specific incentives they offer. Also, this is just part of the sales game, with any community and any builder, the seller can only come down... so why not price higher.

You would be amazed at how many people just don't negotiate with the builders, they think that they should pay sticker price. Most representatives are trained very well and don't even give the impression that they are offering incentives so when they offer some kind of upgrade or closing cost, the buyers think they are really getting a deal and they jump on it and write a contract right away.

There is nothing illegal about that.

My advice to you is to have your Realtor do a market analysis for you, this will show you much the homes have sold for within the recent months in that community. This service is free to you.

I was with some clients today in Wylie, and we ended up writing an offer on a house 34K below asking price from the builder and getting $6500 in appliance, lighting upgrades and have the builder pay for the title policy. This is because the house was an inventory and one of the last homes in the community so the builder was eager to sell.

DR Horton, Sotherby, Khov and Meritage in Murphy are all offering different incentives. The higher the house price, the higher the incentive. Keep in mind that ANY incentive they offer directly ties you to using their lender, their title company and their insurance company.

The title company I don't worry about they are regulated so they cannot inflate their prices much. However, with the mortgage side, if you get a better deal someplace else, I think you can make a big deal about it and get them to match it.

Good luck,

Naima

[calmdude]

nSummer - thanks.

The incentives I was talking about are a bit different. I have not been offered these but 1 person said sometimes they are offered. Here is how it works:
- say house is listed by builder for $400k
- instead of decreasing the price by $40k, builder sells you the house for $400k BUT gives you $40k in cash incentives. The sale is registered as $400k. This helps the builder to keep the prices of his homes in the area from dropping. Buyer gets a discount (but pays higher taxes). Big assumption is that the house should normally be valued at $400k, else you will not get a bank loan.

Is the above scenario legal?

[LynnSlaney]

The 40K senario sounds illegal and I have not ever had a builder rebate cash. The closest I have seen is when the builder will pay closing cost for a buyer. There is a limit of up to 6% the seller can pay-depends on loantype & lender. Most builders reduce by 5-10% of price. It is best to get a MLS price history & market analysis. Many builders to do not list all homes in the MLS system-so a true history can be hard to attain. Appraisers many times go to the builders and get copies of the closed homes for price values when not in the MLS system.

[nsumner]

As long as there is no cash exchange, that is not illegal. It actually is a practice that is done all the time with sellers paying for closing costs for buyers or repairs to be done after closing etc... as long as the house appraises for 400K and that everything is disclosed on the settlement statedment aka HUD1. It helps you by not having to come up with the cash for those upgrades.

There is even a government program called FHA 203K where it's for rehab loans:

Say a house is listed at 100K and needs 40K in repairs, the contract and loan will be for 140K, the house has to appraise for 140K and then the 40K is kept in escrow by the title company or lender and they will disburse the funds directly to the contractor as the work is completed. This is not a violation of RESPA (Real Estate Settlement Act).

I hope that I didn't confuse you.

Naima

[calmdude]

No confusion here - makes sense - thanks for the answers!